A new article by Haseeb Qureshi, Managing Partner at Dragonfly, challenges popular narratives surrounding the recent slump in altcoin prices.
What Happened: Qureshi’s article challenged three prevalent theories regarding the underperformance of these altcoins: venture capitalists (VCs) and key opinion leaders (KOLs) dumping tokens, retail investors switching to meme coins and low circulating supply hindering price discovery.
Qureshi presented data that shows a significant decline in recent Binance-listed tokens, excluding explicit meme coins and tokens with prior token generation events (TGEs).
He used this data to refute the first theory that VCs and KOLs are dumping tokens on retail investors.
"Every top tier VC that comes to your mind has at least a 1 year cliff and a multiyear vest before they get their tokens," Qureshi stated, pointing out that these VCs are still locked, making the dumping theory implausible.
He then tackled the second theory, which suggests that retail investors are abandoning these tokens in favor of meme coins.
By comparing trading volumes of these altcoins and meme coins like Shiba Inu SHIB/USD, Qureshi demonstrated that the timeline does not align.
"Memecoin mania was a full on frenzy by March, but the basket dumped in April, a month and a half later," he notes, arguing that this disconnect disproves the theory of a retail exodus to meme coins.
The third theory posits that the low circulating supply of these tokens prevents meaningful price discovery.
Qureshi acknowledged that while low float can be problematic, it is not unique to the current market cycle.
He provided historical data showing similar circulating supplies in previous cycles and noted, "If this theory were correct, you should see the coins with the lowest floats getting punished, and higher floats should be doing OK. But we don't see a strong correlation."
Qureshi concluded that these popular theories fail to explain the underperformance of these altcoins.
Instead, he attributed the downturn to external market factors, particularly geopolitical tensions in the Middle East, which affected market sentiment in mid-April.
"The market decided they didn't want to buy them back," he points out, suggesting that the broader market environment, rather than specific market structure issues, is to blame.
Looking ahead, Qureshi advised VCs to exhibit price discipline, exchanges to list tokens at lower prices with better lockup terms, and project teams to increase token supply on day one to enhance price stability.
He reassured projects currently experiencing price drops, citing historical precedents where now-successful projects initially faced similar declines.
"Stay focused on building something worth being proud of and keep shipping. Markets will figure it out eventually," he encourages.
What’s Next: For those interested in further discussions on digital assets and their market dynamics, the Benzinga’s Future of Digital Assets event on Nov. 19 promises to be an insightful platform.
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